I would like to share time with Deputy Barry.
Public Service Pensions (Single Scheme) and Remuneration Bill 2011: Second Stage (Resumed)
Is that agreed? Agreed.
I am pleased to have an opportunity to speak to this Bill. I will focus on why it is to be welcomed, outline some of my concerns about parts of it and conclude by making some observations about general pension provision policy in Ireland. However, I will begin by responding to points made in the Chamber earlier today about the Bill and points made elsewhere about the cost of public pensions and the need to reform the current system.
A number of claims about the Bill were made by Deputies from the Independent group. I utterly refute what they said about the Government's attitude to public pensions. They spoke about the alleged iniquity in the application of the pension levy on private pension funds. They made wild claims that the Government was attempting to steal money from people to fund the bailout of the banks. This is wrong on many counts. Two points, in particular, stand out. First, the same individuals spent many years calling for the wealth located in private pensions to be invested in job creation in Ireland. The moment the Government made an attempt to do so, they were the first to argue and vote against it. Second, I would like to remind them in response to what they said about where the money is going that when the pension levy was introduced, the Government made it clear that every cent would go into creating jobs, reducing employers' PRSI, decreasing the rate of VAT and funding a number of schemes across government designed to get people working and active again. All of the money has been used for these purposes and will be so used during the next four years.
It has been suggested the Government's policy is not doing enough to reduce the cost of current public pensions. It must be pointed out in response that those who are receiving public pensions have already seen significant reductions in the last 12 months. Public pensions of between €12,000 and €24,000 were cut by 6%; pensions up to €60,000, by 9%, and pensions of more than €60,000, by 12%. The aim of these measures which were introduced by the last Government and are still being implemented was to reduce the cost of the current pensions bill. The measures implemented are being taken into account. This point is frequently missed when people talk about what needs to be done to reduce the cost of the public pensions bill.
The Bill which is being proposed by the Government should be supported by Deputies for four reasons, some of which have been touched on by other speakers. I want to reiterate them. The first is that the Bill clearly addresses the sustainability of the cost of pension provision in the future. A point missed by those who previously spoke about the Bill is that current pension liabilities have to be met from current expenditure. The Government has to choose whether to spend money on providing accident and emergency services or special needs assistants, or meeting the State's pension obligations. The Bill seeks to bring the cost of future pension provision down. It reflects the fact that if this is to happen, people will have to work for longer and make a greater contribution to their pensions. Nobody, including those who will have to work longer to that end, wants to do this. Surely the greatest thing we should seek to avoid is getting to the point where people look forward to drawing down their pensions, only to find that sufficient money is not available to pay them. The Bill has been designed precisely to avoid this.
The second reason is that the Bill will introduce a simplified model for funding and designing public service pensions. It will do this through the establishment of two funds. People will pay into one fund to meet the cost of the pensions they will receive. The second fund they will pay into will meet the cost of the lump sums they will receive when they leave their employment. It is a far simpler model than the myriad schemes that have been available before now. This aspect of the Bill seeks to bring simplicity and clarity to how people contribute to their pensions and how they draw them down.
The third reason is that the Bill deals with an anomaly regarding top-up payments. The current practice is for the State to top up the number of pensionable years of individuals in certain professions who are on the verge of retiring to allow them to have a particular level of pension on retirement. The Bill will remove that anomaly and thereby ensure taxpayers will no longer have to assist persons who, in many cases, have earned very generous salaries across their working lives. This feature of the current system has been a source of anger. This legislation is seeking to clear up that matter.
The fourth reason is that the Bill will base pension entitlements on average salary across people's working lives, as opposed to their final salary. Unlike some Opposition speakers, I believe that is a much fairer and clearer mechanism. This change reflects the fact that people are paid different salaries at different points in their careers and pay into their pension funds at different rates at different times in their working lives. A model that calculates pensions on the basis of average earnings across the period represents a much fairer way of determining what level of pension a person will be entitled to receive.
I would like to mention two aspects of the Bill that concern me and should be teased out as it moves through the Houses. Section 19(1)(a) limits the pension that will be available to an individual to a maximum of half his or her final salary. I will explain my concerns in this regard. People are working for longer nowadays because they are healthier, because they need to in many cases, or because they want to. Towards the end of one’s working career, one might decide to take a different job, perhaps on a lower salary than one received in the early or middle parts of one’s career. A person in his or her mid to late 60s who is preparing to retire might choose to do a job that attracts a salary far below that he or she has earned throughout the rest of his or her career. If section 19(1)(a) is implemented, the pension such a person will draw down could be less than the contribution he or she has made to the pension fund across his or her working life. If this is not really an issue, it should be explained. If it is an anomaly, as it appears to be, it should be dealt with as the Bill moves through the House.
My second concern relates to public servants who decide not to work full-time for various reasons. They might take a career break, for example. I am worried about the consequences of such decisions for their pensions. When working parents are making decisions on child care and looking after their families, they might decide to take up the option of working part-time or not working for a period of time. When we are considering a Bill such as this, we need to consciously reflect on the pension provision we want to make for such persons at the end of their working lives. I do not think their pensions should automatically be based on their average salaries, or the number of years over which they have attained that average salary. As someone who is in that position, I think the State needs to pause, decide how it wants to deal with this issue and make adjustments, if necessary.
I will conclude by speaking about the overall pension provision issues. We need to revisit this debate. The Government needs to engage more broadly with the industry. The policy documents in regard to private pension provision in the State detail many of the objectives in regard to coverage as well as how many people are in pension schemes. Of course, as we now know, we have a growing problem of the same pension funds now being in deficit. In conclusion, the issue of pension sufficiency needs to be given the same weight of consideration as pension coverage.
I welcome the opportunity to speak on this important Bill, which will address the pension shortfall that will arise if this situation is allowed to go unchecked in the next 20 to 30 years. The growing cost of public sector pensions, currently €3 billion a year, is a matter of huge concern which needs to be dealt with immediately. The Irish people want to see reform and real change and, most of all, they want to see an equitable and fair society.
The spectre of the previous Financial Regulator, who sat on his hands and received an outlandish golden handshake on his retirement after falling asleep at the wheel, greatly annoyed the Irish people. However, a similar situation surfaced recently when the Government Secretary General retired on a retirement package of €713,000. This highlighted the fact this whole area needs immediate and direct intervention. It makes it even more difficult to stomach given this particular civil servant was sitting at the Cabinet table for almost a decade and directly contributed to the advice which almost bankrupted this country. It is strange and bizarre that he could be rewarded for doing so.
We all talk of how wrong this situation is, rightly so. For the record, however, I wrote to the outgoing Secretary General last month outlining that I felt the lump sum payment he received was wrong and that it should be returned immediately. I did not comment on his pension as I feel everybody is entitled to a pension as it relates to the work that person has done over a lifetime. However, I feel the method of calculation of the pension was wrong, which is what is being rectified in the Bill today. I did not want the opportunity to arise where this individual could say no one formally asked him to return those moneys. I have not received a reply, which is quite understandable as the only reply that is necessary is for those moneys to be returned.
It is very important to deal with the situation which was and is occurring, where lump sum payments and pensions received by certain people far outstrip what this country can afford. It is important for the Government that these pension payments to public servants, including TDs, are seen to be fair and equitable.
When we think back on the circumstances that combined to create this unsustainable situation, benchmarking stands out. Benchmarking was, in effect, a ploy where the sole objective was to buy votes and elections at a cost of €1 billion per year to the taxpayer. Benchmarking was also inequitable within the public sector as higher grades got a special deal that more or less doubled their benchmarking allocation — one could almost say they were paying themselves. The inequality within the public sector saw top earners on €250,000 while a starting grade began at approximately €20,000 — a tenfold differential, up from a sixfold deferential some years previously.
Senior public servants wanted to be benchmarked against bankers, whose foundations, as we well know, were built on quicksand. It has to be noted that no method was available for negative benchmarking. While we are all aware of the comment that funds can go down as well as up, benchmarking was allowed to go only in one direction. Negative benchmarking has occurred in the agricultural sector, in which I am involved, for many years. While people of course do not like to see a reduction in their incomes, previous Governments were very remiss in the way in which, and the cavalier attitude with which, they encouraged people to spend. At no point did I hear anyone say, "We are going to give extra money now, as things are going relatively well, but we encourage you to be prudent". Quite the opposite. The attitude was that the party was still going on and there would be a soft landing. There are plenty of backsides in this country that have bruises on them from landing on a hard floor.
One last absurd situation which occurred in benchmarking was the fact that public service pensions were also benchmarked. Benchmarking was meant to relate to extra productivity. How could one look for productivity from someone who was retired? It does not make sense.
The Bill is based on career earnings rather than what a person is earning on retirement so savings will be made in this regard, which is good. In addition, for the likes of myself, the pension age will be increased to 68 years of age — if I manage to reach that point — which will contribute to further savings. The Bill could and should be extended even further, and should apply to existing workers who are not yet retired. This is the situation in the UK but, apparently, the Croke Park Agreement does not allow such a situation to occur. I will ask one simple question to anyone who is working today and contributing towards a pension: is it better to know you will receive slightly less than you are currently being promised, but you are certain of your money, than to be promised a lot of money and be told at a later date that it is not deliverable? There is a value in certainty. People can plan if they have certainty and know the pensions they will get are realistic and solid.
The public service pension scheme is unfunded and the pension reserve funds, as we know, are virtually gone. It is important we have a discussion regarding current pensions. This should be entered into now, in a sensible fashion, rather than waiting to deal with it in a reactionary fashion when problems arise.
We have seen recently how the pension industry acted in a cavalier fashion. The fund managers in charge of these pensions gambled with other people's money, and they lost. It is important to maintain confidence in the pension industry because, as we speak, there is no confidence in the private pension market, where the industry has acted in a cavalier fashion and run the funds into deficit.
The management fees of these pensions are too high and totally unacceptable. People ask whether putting money into a fund is only helping to liquify an almost insolvent situation. The only reason to put money into a pension fund at present is to obtain tax relief but, if tax relief reduces, it becomes a very unattractive option. What sounds very attractive is to pay one's tax and put one's money on deposit where up to 5% can be guaranteed and the funds are solid. Current plans to reduce the tax relief from 41% in 2011 to 20% in 2014 may have to be reconsidered in the light of the loss of confidence in the pension fund industry. In the context of a possible increase in the tax relief for lower earners, we might see an increase in the pension funds available, allowing management charges to be lower as high volumes are needed to ensure low charges.
The Government is anxious to encourage people to invest in their future and it is serious about dealing with the private pension industry. It is important, as we are addressing public service pensions, not to forget private sector pensions. It is wrong to create a divide between the two sectors as such a divide will not benefit either.
In conclusion, I welcome the Bill, which brings a sense of reality to the level of pensions to be paid in the future. It addresses the fact we need to be able to pay for the pensions we promise. It is but another trademark of how the Government approaches its business and is avoiding the potential calamity where, one day, due to changing demographics, public service pensions may become unaffordable. Nobody wants to see a situation, at retirement age, where there is uncertainty over pensions. This would lead to the anxiety and fear among older people of not being able to manage in one's latter years, a time when people should be able to enjoy the fruits of their labour, knowing their contributions to this country are recognised and valued by all.
I wish to share time with Deputy Timmy Dooley.
Is that agreed? Agreed.
I welcome the chance to speak on this legislation which, for the information of Members who may not have been in the House at the time, was announced in the previous budget by our late colleague, the former Minister, Mr. Brian Lenihan. It was introduced in response to the need to reform considerably Ireland's pension infrastructure at public and private levels. It certainly contains some difficult decisions and presents some difficult scenarios for people. However, the system of public service pension provision in Ireland has reached a point at which there are hundreds of tiers of pensioners, many of whom work in the same establishment. Earlier today I heard one Deputy criticise this legislation because it would introduce tiers of pensioners. Had she chosen to consider the membership of this House, it is evident that tiers of pensioners exist. Having taken a quick look around the Chamber, I note two Members have one pension arrangement, while others have different pension arrangements, even though they all do the same job.
There also are different retirement ages.
As Deputy Buttimer observed, the retirement age for those elected since 2004 has increased to 66, while the retirement age and conditions for those elected before then are considerably different. I make this point not to be smart but because a glance around this Chamber reveals how different it is when compared with this time last year. I do not refer to the make-up of the parties but to the individuals involved. Much attention was given to packages given to some, but no attention was given to the fact that many people who were elected for the first time in 2002 or 2007 are now unemployed, do not have other incomes to which they can return and in some cases will not have the advantage of any pension provision for 30 years. The criticism Members receive from the usual quarters, as well as from some within this Chamber, about the specific arrangements for public representatives should be considered in this context. Moreover, the turnover in this House from election to election is getting more significant. If Members wish to attract younger people into this profession and if they have any respect for it, this issue and what they are doing about it must then be considered.
On the general legislation, I welcome the change whereby career average earnings will now be considered, rather than a person's final salary. It has become apparent in recent years that the current practice of basing pensions on final salaries has cost the State some fine civil and public servants. Fearing potential attacks on their lump sums or that their pensions will be reduced next February, such people have left, even though they have many years to give. Moreover, they have taken with them much experience and many contacts which the State could do with. This is very apparent in the Garda Síochána, among teachers and nurses and right across the public service. However, because this deadline has been placed on people and because of the manner in which pensions are measured based on their final salary, they have left rather than face a lower pension after next February. A system of using career average earnings is far more effective economically but I share Deputy Donohoe's concerns regarding section 19(1)(a), which is a matter of the Government must address before Committee Stage.
On the subject of public sector reform in general, obviously it is an area in which I have an interest. I compliment the Government on the appointment of Mr. Paul Reid as the programme director for the new reform and delivery office within the Department of Public Expenditure and Reform. The design specification of the reform and delivery office is incredibly important but while I do not criticise the appointment, I am critical of the fact it was not publicly advertised. A point must be reached at which all jobs at this level in the public service are advertised publicly. A range of Secretaries General will retire in the coming weeks and each such Secretary General post should be fully advertised nationally and internationally. If one is to begin to change the culture at the top levels of the Civil Service, which are resistant to change, outside thinking must be introduced.
I reiterate that the design and proposed specification of the reform and delivery office will be incredibly important. The manner in which the public service is designed into silos at present, whereby all Departments and organisations operate strictly independently of one another and God forbid that one might exchange information or trends, constitutes one of the greatest barriers to achieving transformation of the service. If this new office within the Department of Public Expenditure and Reform can break down these silos and has the power and mandate to so do, which will require the power of the Minister behind the office, then there finally may be some progress on shared services, common recruitment policies and pension policies. The pension policies under discussion differ in some instances from agency to agency and from Department to Department, even though everyone effectively works for the same Civil Service. If Mr. Reid and his unit can achieve this alone and can break down these silos, they will set themselves on a path towards delivery of the transformation programme.
Senior management within the civil and public service is not engaging at an appropriate or an energetic level with the transformation agenda. Seven months after the establishment of the new Department, there still is little evidence of this agenda, despite the work of the Minister and his new Secretary General. Those on the coalface have the best ideas in respect of transformation. Those who man accident and emergency units in hospitals and who must deal with greatly reduced budgets know where savings may be achieved without affecting patient care. Those in the schools who are in the same position with regard to budgets know where savings can be achieved without affecting education. However, a system still has not been devised to involve such people formally in decision-making and to pay due attention to their ideas and proposals. Were a single consultancy contract within the transformation agenda within the public service to be cancelled and were the money saved then put into a pot for ideas from those on the coalface, savings would be achieved for the Exchequer and far better ideas and greater efficiencies, which everyone seeks, would be forthcoming without ruining the level of service.
There are some signs of hope. I welcomed the establishment of the Department of Public Expenditure and Reform when the establishing legislation came before the House last June. I welcome that public service transformation was linked to public expenditure. However, the next six weeks will test this Department and will test whether these two parts of the equation are equal. I have no doubt but that senior management people within all Departments are trying to be seen to dance to the tune of the Department of Public Expenditure and Reform as they engage in the ritual of budget negotiations. Moreover, all senior Ministers will fight for their turf. However, the Minister, Deputy Howlin, must fight back for that turf by asking what those involved are bringing to the equation in respect of public service transformation. He must ask what is being brought into the equation in this budget discussion regarding the reformation of the relevant Department, more effective delivery and the delivery of services to people on the ground with much smaller budgets. When Members are presented with the budget or with whatever sequence of announcements is to be made, presumably starting after the by-election, it would be great were a delivery mechanism to be associated with each expenditure announcement, showing where a transformation will take place with regard to services in each Department and agency. If that could be seen or even if signs of that happening were discernible, I would then believe the Department is working and that public expenditure and public service reform constitute even parts of the equation.
I do not doubt the personal commitment of the Minister, Deputy Howlin, to reform but when I served as Minister of State with responsibility for this sector, I made a point I now reiterate, namely, as far as the senior management in the civil and public services is concerned, public service transformation is someone else's business. It is an "any other business" item and such people have no heed or respect for it unless it is attached to the budget. It will be down to the Minister or Mr. Robert Watt or officials within that Department in the coming days and weeks to put it directly to them that their budgets for 2012 to 2016 will depend on what they will do to transform their organisations. They must understand that failure to transform their organisations will have budgetary consequences and one must be this direct and specific in this regard.
A set of Secretaries General is due to retire, as are sets of senior officials in Departments and agencies. I welcome the reforms the Minister has initiated in respect of the top level appointments committee, TLAC. However, this will not be enough unless such job vacancies are advertised, unless information about them is circulated internationally and unless an international pool of talent is encouraged to work within the Irish civil and public services to bring different ideas, including thoughts and ideas from the private sector, and to bring an entirely newraison d’être to that service. A golden opportunity to do this will arise in the coming weeks and the Government must ensure all these posts are advertised.
I welcome the opportunity to contribute to this Bill and like my colleague, I acknowledge that this Bill was initiated by our late colleague, the former Minister, Mr. Brian Lenihan, who had a clear picture of where the reform agenda needed to go in recognising that what one might call the excesses that exist within the public services were not sustainable in the present economic climate. While the pension levy was the first iteration of a process that set about reform, clearly the passage of this Bill is a culmination of that debate, putting in place a platform for a sustainable level of pension payments that can be met from within the capacity of the State as we deal with this economic crisis.
Some on the other side of the House have sought to apportion blame for the way in which our spending on pensions had got out of kilter when now viewed against the current economic situation. There was certainly a disparity between what was available by way of private pensions and what was available to those public servants who had the benefits of a defined benefit scheme and were able to retire in a particular fashion. There was an effort by some who sought to apportion that blame to certain civil servants who resigned in recent months, which was entirely inappropriate. That the system was no longer in parallel with where the economy was should not be blamed on any one individual.
The Bill seeks to provide a pension on the basis of average career earnings, which is much more justifiable and will be more sustainable for the State in future. We must recognise, however, that many people who worked in the public sector have done an excellent job on behalf of the State, have worked hard and to a certain extent have put aside their capacity to have earned much greater amounts of money in the private sector. They have given their service to the State and it is right that they would be rewarded in an appropriate manner, but clearly change is needed and we welcome that.
One of the previous speakers suggested that this reduction should be applied to existing public sector workers, which would be a retrograde step. While I accept we are going through some difficulties in the economy at the moment, doing that would set a new precedent which would not be welcome in the long run. When it is applied to new entrants, everyone knows from the start where they stand and what ultimate pension will apply to them.
The necessity to increase the pension age is fraught with difficulty but it must be done recognising that people are living much healthier lives and living longer. There is a requirement for people to participate in a working environment for as long as possible and those limits are now established in this legislation. We need to be careful to ensure that when a person suffers ill health, we have the appropriate mechanism to allow people to retire early on bona fide health grounds. Such caveats should be addressed at an early stage.
The general pension situation was addressed in a recent RTE programme which sought to give some insight into how private pension funds are administered. The Government needs to act in that area, recognising that very considerable fees are deducted from pension funds which are clearly not justified in the current, or any, economic climate. I hope the Government moves quickly to address what has now become a crisis in that area.
On a number of occasions I have spoken about the private pension levy the Government introduced as part of its jobs initiative. When we are talking about pensions, it would be wrong not to address that. It has not worked and I never thought it would work. It was introduced as a stimulus initiative to create some activity in the tourism sector. That sector was already going through a period of recovery. Tourism activity is measured against an exceptionally low level last year, largely as a result of the ash cloud from the Icelandic volcanic eruptions. To suggest that the tourism improvement can be attributed to the VAT reduction is farcical. I understand the IMF and EU advised the Government at the time that it had problems with the introduction of such a levy, but clearly that was not heeded. The pension advisory board also advised the Government that it was not without problems from its perspective. We now see, following the introduction of the pension levy, that pension funds are becoming further indebted and some of them are on the verge of being no longer viable, which is very serious. While I understand the VAT reduction is supposed to be for a three or four-year period based on the application of the levy on private pensions, I appeal to the Government to address it as part of the budget. It should put up its hand and accept it was a mistake and move away from it. If the Government continues to raid those private pension funds in the way it has set out, it will lead to much greater problems down the road.
The Bill represents part of a reform programme the Government intends to initiate across the public sector. My colleague spoke about the reforms needed in certain areas. The Government needs to address the McLoughlin report without delay. The sooner it addresses the inefficiencies in local authorities, the better. I understand the McLoughlin report identified approximately €500 million in cost savings to be achieved there. We frequently hear Ministers say that most of the low-hanging fruit has already been reaped by those on this side of the House when we were in government, but that is not true. We took some really tough decisions, including the introduction of the universal social charge, the introduction of the public service pension levy and the reduction in levels of pay to public and civil servants, which were not low-hanging fruit. There is still low-hanging fruit according to the report produced by Pat McLoughlin, which clearly sets out how the Government should restructure certain sectors of local authorities through shared services and various other measures. I appeal to the Government to make that report an integral part of its budgetary process because real savings can be made in that area. It is not just about the financial savings. The structural approach to the management of those services can only have a beneficial impact on the customers of our local authorities. As part of any reform process we must move to put the citizen in the position of being the customer or consumer. Sadly that culture does not exist and some of the Government's approaches fail to change that culture or set that change in train.
I am glad to see the Labour Party Minister of State, Deputy Kelly, in the House. The Minister for Health has indicated in recent days that his idea of reform is to have a private management company run hospitals in the mid-west and west. Quite apart from the ideological component of that debate, which must cause rancour for Labour Party Members, it certainly does nothing for the morale of the 110,000 people who work in that sector. While there is a need for culture change, it must be led from within and from the ground up, drawing upon the skill set and knowledge across the entire organisation. It will be interesting to see how the high-handed approach of putting external consultants into a hospital environment, regardless of how good they might have been in the private sector, works. It does nothing for the morale of people who work in the public sector. If this is the start of a path to privatisation in the delivery of health care, workers across the public and civil service must be wondering where they stand. Will health and nursing care now be delivered by agency staff? Will we see a privatisation of the health service by stealth, block by block? Perhaps there is nothing in it, but we need a greater flow of information from the Government. It does nothing to boost morale.
Making significant changes to individuals' personal finances, whether it be through pension, pay reduction or otherwise, needs significant buy-in. People need to feel part of the process and need to know they are part of a plan that is going somewhere and has some capacity to achieve. We need a more holistic approach to the area of reform and rather than just considering the impact of the financial component on the State's fiscal position, we must see it in terms of the overall delivery of the service.
I am sharing time with Deputy Dara Murphy.
I did not come in here to pick a fight with Deputy Dooley, but I remind him that the Minister for the Environment, Community and Local Government has pioneered the movement towards sharing resources and reform of the structure and cost of local government. When I hear the Deputy talk about the whole issue of cultural change, privatisation of the health service and agency nurses, I close my eyes and I wonder where I was for the past 14 years because this is what was happening when his party was on this side of the House. I do not want to fight with him, but that is the reality.
I agree with Deputy Calleary's points on public sector reform. As somebody who has been a public servant in the classroom for around 20 years, I could not disagree with anything he said about the issue. I hope the Minister will engage constructively with the public service; not just with the unions, but with an gná muintir in the public sector, the ordinary person who has much to offer. I made that point to the Minister. We need a forum on public service reform.
If we are to talk about public service reform and renewal, it must be in a transparent way, and in a way that will produce tangible benefits. One of the biggest catastrophes to hit this country was benchmarking. It was used as a political weapon by the former Taoiseach, Mr. Bertie Ahern, to buy votes, but we could not afford it. We all benefitted from it. I could not understand why we had to change what was happening on the ground in the public service.
I welcome the comments of the director general of RTE in a speech given in DCU recently on the cost and provision of salaries in that organisation. He is right. There are exorbitant salaries being paid in RTE at the high end and these need to be trimmed. RTE is beholden to the State and to the licence payer. I know that it is exempt from the Bill because it is a commercial entity. Perhaps we should also look at those other companies exempt from the Bill, but that is a different story. There is sufficient talent within RTE that deserves to be nurtured and promoted, and I hope RTE does this. Some of its very good programmes are indigenous programmes produced by people who do a very good job.
This morning the Minister outlined in his speech that the current model is no longer tenable, and he is right. The cost of providing public sector pensions is increasing and needs to be tackled. This debate should have taken place a long time ago. I appreciate that the last Government had begun that process. However, it was playing catch up. There are six people working for every pensioner today. In years to come, that ratio is expected to be 2:1.
The Bill before us is an example of a government planning for an anticipated problem and an example of a government of renewal, reform and transformation. If the same energy had been exhibited by past administrations, then our economic woes would not be as serious as they are today, and we would not be presented with the difficulties that are before us now. The Bill is critical to public service renewal. It is important that we allay the fears of existing public service members, in that it has no implication for their pensions.
I love the phrase "financial emergency". The late Minister for Finance, Mr. Brian Lenihan, brought it in as a Bill and that is what this is. We are in the midst of a financial emergency. This Government has to legislate and put in place what is best for the public interest. I challenge the Members in the Technical Group and Sinn Féin to engage properly in this financial emergency.
I welcome the Minister's speech this morning. He admitted that he is considering minor amendments. It needs to be more open-ended than that. This is a very complex and wide-ranging issue which many people do not understand, due to the language used by vested interests and commentators. We must communicate to the people in simple language. We must plan for tomorrow. I agree with Deputy Calleary's concerns about early retirement in February. The volume of phone calls, e-mails and representations from existing public servants across the spectrum has been extraordinary. I hope we do not lose that large body of expertise and wisdom in February. Language is important because it is critical we engage and consult and do not scare people.
This Bill can be linked to the whole issue of transformation and renewal of the public service. It is not just an Exchequer exercise in reducing costs, although that is part of it. Those who watched the RTE programme on Monday night will recognise that there needs to be an in-depth debate across the political divide on the provision of pensions and how to plan for the retirement and longer lives of our citizens. No responsible parliamentarian criticises people for living longer. We welcome that, but it has a consequence and we must plan for it.
This Bill is about the future. The decisions we make now will have repercussions in the future. I know it has a 2050 approach, but by bringing in a single, transparent scheme, we are providing a good service to the people. The three important changes are in respect of the career average, the later retirement age and the decreases to pension payments. These changes are to be welcomed because they create a level playing field in the public service. When I was teaching, there were different pension requirements and different PRSI contributions made. As a Member of this House, I am aware that there are different pension schemes open to Ministers. Irrespective of the position of a public servant, there will be a single transparent pension payable to that individual, which is welcome.
It is important that we recognise the immeasurable contributions being made by public servants across the country. They do a great day's work. They are providing a service. They are the intermediary for many people under pressure, for students in classrooms and in the health service. I very much regret that there has been a demonisation of public servants in certain media quarters. That is done for cheap political gain and for headlines. It pits private workers against public workers, which is wrong. Some people opt to work in the public service, while others choose to work in the private sector. That is the way society evolves.
We must have policy change. There is a challenge for politicians and for the Government. As the Minister has said, we must make that change, because if we do not, we will pay the consequences in time. We live in extraordinary times, and that is what we have to confront. That is why it is important that we forget about actuarial terms and different configurations and calculations. This Bill is a continuation of the changes being made within the public service, including the integrated State pension in 1995, fixing the retirement age at 65 for new entrants in 2005, and introducing the pension levy in 2009. We have a compendium of change and this Bill is a continuation of that.
I welcome the Bill, although I have reservations about certain parts of the legislation. I hope the Minister will address my reservations on Committee and Report Stages. I welcome the fact the Government is trying to stimulate job creation activity and I hope we will have a good debate both on Committee and Report Stages.
Like previous speakers on both sides of the House, I welcome the introduction of this Bill and compliment the Minister on it. I acknowledge that much work had been done on it by the previous Minister, the late Brian Lenihan. Fianna Fáil colleagues have now left the Chamber, but they were keen to point out that this was their work, while criticising its elements that came from the current Government. It is worth mentioning therefore that the work done in this regard by the last Fianna Fáil Government came 13 years too late. Much of what is being done now, not just in this Bill but in every Department by every member of the Government, is putting out the many fires that were left burning by the previous Fianna Fáil Administration.
Every western country with demographic changes in its population ratios is being forced to make changes. As is so often the case, the difference in Ireland is that our correction has to be far more severe and significant. It is entirely wrong to say that all the changes are demographically based, however. In recent years, we have unquestionably put the State into a position where it was paying far too much in pensions and retirement packages. Other developed countries managed to hold their growth levels at around 3% and have also managed to cap pension increases to achieve sustainability. They understand the important reality that the younger generation of every state is obliged to pay for the retired population. Every society is judged by how it looks after the elderly. In this regard, the Bill shows the Government's strong commitment to those who will retire from the public service. There is no dilution of that ambition. In fact, the purpose of the legislation is to ensure the State will strike a fair balance between those who work and those who benefit from retirement packages.
It is important to focus on the ratios that are being discussed. We will move from a position where there are six people at work for every retired person, to one where there will be two workers for every retiree. We must therefore continue to work towards having sufficient employment growth so the latter ratio may not become a reality. In different ways, many other countries have managed, with low birthrates, to keep that ratio from moving to such a disadvantageous position as two to one.
The Government has been criticised for the recent pension levy, with the Opposition saying that it did not provide the required stimulus. That levy has been in place for only a few months, so it is nonsensical to suggest we should see immediate benefits from it. In all its actions, the former Government sought only to deliver an immediate solution for an instant soundbite of publicity. It did not have the foresight to help citizens.
The Government is trying to secure new employment. The more damaging element of our public finances, however, is that the ratio of people eligible for work to retirees is potentially moving from 6:1 to 2:1. In addition, with unemployment levels of 14% we clearly need to work extremely hard to secure future employment. Ultimately that is how a developed and well functioning society will work when people are paying their taxes, thus allowing workers to retire at a reasonable age.
We have managed to arrive at a point where life expectancy has increased significantly, which should be welcomed by society. While it creates clear problems for the provision of pensions, it also means that extending the retirement age is entirely reasonable. If the retirement age was to stay as it is, a significant majority would be spending more of their adult life in retirement than at work. In purely economic terms, that is an unsustainable position.
As the economy continues on its current upward path, we should examine schemes that would allow people approaching retirement age to move into job-sharing schemes, thus permitting a smoother transition from employment to retirement. There is huge potential in that regard.
I commend the Bill and acknowledge that there is support for it from Fianna Fáil. In this instance, they were required by the troika to put it in place. I hope they will endeavour in some small way to be more objective about the good work being done by the Government, and not just focus on the work the previous Government rather tardily brought before us.
I thank the Leas-Cheann Comhairle for the opportunity to speak on this Bill. Before going into the details of the legislation, I commend and thank the vast majority of public servants and public sector workers generally who have served this State well. They always did their best for the country. I endorse what was said earlier by Deputy Buttimer on this issue.
In the current climate, it appears trendy to bash or attack public servants generally, but I will challenge that approach during this debate on pensions. I am sick to the teeth of some of the so-called commentators and some politicians having a go at decent hardworking bin-men, teachers and nurses. Most of the people throwing this abuse about would not last a minute in a bin lorry, an accident and emergency department or a classroom in a disadvantaged school. We have heard enough of this guff, so let us make our public service better and let us serve the public better. As a former public sector worker myself, that is something I know about. Let us also ensure that we look after our pensioners, although unfortunately this is not what the Bill is about.
It is a bad mistake to have a mass exodus of teachers leaving classrooms in February 2012 in the middle of the school year. It is bad planning and lacks commonsense. Imagine the hassle and trauma such an exodus will cause for parents and pupils just after Christmas. I urge the Minister and the Government to reconsider this matter. We cannot disrupt the flow of an academic year, particularly pupils who are studying for the junior and leaving certificate examinations. The Bill's principal purpose is to provide for a new single pensions scheme for all new entrants to the public service. The new scheme is the subject of a commitment in the EU-IMF programme of financial support for Ireland.
The Bill includes in Part 3 the necessary legislative amendments required to facilitate a reduction in pay rates for certain public servants and officeholders, including members of the Government and new members of the Judiciary, whose pay rates are determined in legislation. This is the essence of the Bill and what this debate ought to be about. That said, we must be very sensible and logical in dealing with the issue of pensions. I call for an independent professional evaluation of the figures of the Comptroller and Auditor General before the Bill is passed. It is wrong to make law on the basis of incorrect information. I will expand on this point.
Section 10 of the legislation deals with the single scheme pension for public servants which will reduce retirement income. The Trident report commissioned by the three teachers' unions shows many new teachers will pay more in than they will get out. Every Member of the House should have received a copy of this report from the INTO and it needs to be studied very carefully. It is independent and authoritative, and its author, Mr. John O'Connell, is one of the country's leading actuaries.
The single scheme proposals are based on flawed evidence. The Minister for Public Expenditure and Reform, Deputy Howlin, told the Dáil on 11 October: "To appreciate how the single scheme will continue to provide valuable pensions for teachers, it is instructive to look at the 2009 report of the Comptroller and Auditor General on public service pensions which estimated the annual pension cost to the State for teachers [...] to be 22.4% of pay". The Minister is wrong on three counts. First, the Comptroller and Auditor General's figure of 22.4% is not the cost to the State. Second, the single scheme relates to new entrants, while the figure of 22.4% does not. The Comptroller and Auditor General's report is not instructive; the figures are clearly flawed, which is why I call for an independent assessment thereof.
The Minister took the figure of 22.4% from page 29 of the Comptroller and Auditor General's 2009 report. As I said, this is not the cost to the State. As the table clearly shows, it is the gross pension cost to the State for teachers as a percentage of pay. Directly beside the figure of 22.4% in the table is the net pension cost, 9.6%, which is the true cost to the State of pensions for teachers.
With regard to new entrant costs, the proposed single scheme that the Minister has defended is for new entrants only. The figure of 22.4% takes account of teachers with different pension conditions. The cost of pension terms was reduced substantially by changes in 1995 and 2004. Any meaningful comparison with the report of the Comptroller and Auditor General requires the Minister to turn to page 30, on which Figure 2.10 sets out clearly new entrant contribution rates. The net cost in respect of a primary teacher is 7.2%. This is the Comptroller and Auditor General's figure for the cost to the State of a pension for a teacher under the conditions that obtained in 2004. The Comptroller and Auditor General's report is not instructive. It is widely accepted that the Comptroller and Auditor General has overstated the cost of public service pensions by using outdated assumptions. The most serious of his assumptions is that pay will increase every year by the rate of inflation plus 1.75%. The more realistic calculation used in the Trident report is that it will increase by the rate of inflation plus 1%. This indicates a new entrant cost to the State under current pension terms as low as 3.4% of salary, which is a long way from the Minister's figure of 22.4%.
The pension levy is not a pension contribution. The Minister is critical of the Trident report for including the pension levy as a pension contribution, although that is exactly what the Comptroller and Auditor General did in his report. While the levy is not legally a pension contribution, it is a pension-related deduction confined to public servants and is related to public service pension terms. It is a pension contribution in fact, if not in law. The Minister is critical of any presentation of it as anything other than temporary. The levy raised €944 million for the State in 2010. It is a matter of debate how soon it will forgo this income.
The Trident report commissioned by the three teachers' unions shows that, under the single scheme, many new teachers will pay more into their pension funds than they will get out of them. If the pension levy were to be cut in half, the cost to the State of teachers' pensions under the new scheme would be 1.5% of salary, or 4.9% if the levy were to be abolished immediately. Even a contribution of 4.9% is below the average private sector employer contribution where occupational pension schemes are still in place.
The Minister wants to discount the pension levy and cite the Comptroller and Auditor General's report but quotes as a pension cost to the State a percentage including teacher contributions, which is not the figure for new entrants and is based on flawed assumptions. The Minister states the teachers' unions do not reflect the true position. The calculation by Trident Consulting has not been undermined in any way in the debate on the single scheme. It would be more than regrettable if serious and long-term changes to pensions were based on inaccurate figures and flawed assumptions. That is why I call for an independent evaluation.
The INTO, of which I once had the honour of being a member, has called for a re-examination of pension costs to the State. This could be done quickly based on reworking the assumptions of the Comptroller and Auditor General. There might still be disagreement with the Government on policy, but major long-term decisions should not be based on wrong information.
There are other key points in the Trident report that I would like to address. Previous adjustments to the teachers' superannuation scheme and the public service schemes generally — for example, those in 1995 and 2004 — have reduced benefits and increased the proportion of retirement benefits funded by employees. With the pension levy established in March 2009, any new member joining the current scheme at the age of 21 years requires a salary contribution of only 3.4% from the State, as the employer, to help fund pension costs. A new teacher starting today at the age of 25 years requires an employer contribution of 5.7%, which is still less than the private sector average.
The proposed new scheme from 2011 — moving to career average, later retirement and CPI linkage — marks a drastic disimprovement in retirement benefits for new teachers and public servants generally. The value of teachers' contributions under the proposed new scheme will exceed the value of benefits, a set of circumstances that may be open to legal challenge, especially since membership is compulsory. The new scheme will be less generous than all private sector schemes and actuarially less valuable than having no pension provision whatsoever.
If the pension levy were to be cut in half or abolished from 2011, the employer contribution then required would be just 1.5% or 4.9%, respectively. The new scheme will result in a total pension of 44% of final salary after working for 43 years, compared to a 50% pension after working 40 years, as is the case at present. The lump sum will fall from 150% to 129%.
With changes in recent years, including 1995 and 2004, the existing pension terms for teachers are sustainable. Alternative approaches to cutting costs and especially to curbing the gains through final salary linkage for high earners on retirement are available. These include setting a maximum public service pension or a hybrid pension where final salary applies up to a certain threshold. A single pension scheme for all public servants will be complex to administer, especially where pay-roll facilities remain decentralised.
The assumptions used in the report are standard ones, with a conservative approach adopted to salary growth. The results are sensitive to the salary growth trend. If salary growth were to be significantly ahead of inflation, the new scheme would compare even more unfavourably to the current terms. The value of promotion, especially in later career, will be reduced substantially in pension terms under the new scheme. Among categories of teacher who would pay more in than they would get out of the new scheme are: aged 21 joiner, no promotion, unbroken service; aged 21 joiner, special duties posts at age 40, unbroken service; aged 25 joiner, no promotion, unbroken service; and aged 25 joiner, no promotion, five-year career break. All this material is from the Trident Consulting website and was posted yesterday. I raise these issues because they are an important part of the debate.
Section 13 deals with normal retirement age. Naturally, I agree that people should work longer in their jobs where possible. This has been proved to be beneficial from a health point of view. It is good for the person, the country and the person's lifestyle. At the same time I encourage people to move on if the opportunity arises and they should consider changing careers or changing movement within their career.
I was the principal of a small inner-city school for 17 years. When running a school in a disadvantaged area one gives one's best for the first ten or 12 years. Then one begins to realise that it begins to get difficult and that is when it is time to bring in fresh faces, new bodies, new ideas and fresh staff. This is something with which many people agree, especially in difficult, disadvantaged areas. Such people should consider these ideas and should consider ways to deal with the public service because it would make the public service more efficient.
Section 20 deals with the Office of President and provides that every person who, having held the Office of President of Ireland, ceases to hold that office for any reason other than death shall be eligible to receive a pension and, as is the case currently, no vesting period applies to presidential pensions. Those in high office should consider the idea of cutting costs of salaries. I am pleased some of the presidential candidates have stated that they were prepared to take a cut and some have stated they would be prepared to live on the average industrial wage. I take the opportunity to commend TG4 on the debate last night, one of the best I have seen. There was respect for all the candidates, all the difficult questions were asked and the programme did a great service to public broadcasting in the State.
Section 25 deals with a member of An Garda Síochána in a position that requires retirement, or gives an entitlement to retire, on attaining 55 years of age; a member of the Permanent Defence Forces in a position that requires retirement, or gives an entitlement to retire, upon attaining 50 years of age; a prison officer in a position that requires retirement, or gives an entitlement to retire, upon attaining 55 years of age; and a specified fire brigade employee or a retained firefighter. These are important as well. I have concerns in this area because there are many quality people in the Garda Síochána and the Defence Forces and fire officers who are leaving the service. I hope we are not damaging the service or losing good quality, experienced people because of the situation in which we find ourselves.
When discussing pensioners it is important to deal with them, to look after them and to treat them with respect. Let us remind ourselves that these people worked hard and deserve a decent pension. They have paid into their pension and this should be respected. These people, whether gardaí, nurses, teachers, firefighters or bin workers, have served the State well and they should be given a decent lifestyle when they decide to retire in the end.
I welcome the debate and the opportunity to put forward my views and those of many teachers and public servants in particular. I urge the Minister to read the Trident report and to listen to the views and proposals put forward by the Irish National Teachers Organisation. They contain some logical, sensible proposals. I urge the Government, especially the Minister, Deputy Howlin, to examine this issue seriously.
I am pleased to have the opportunity to speak on this Bill. This is an important issue with wide implications. Many issues have been touched on by other speakers. We have been informed about demographic changes for years and that by 2035 there will be a serious problem in the country. We did not realise there were other economic issues at the time which would impact on our ability to meet pension requirements in future.
One presumes people will have to work longer but it is easier for some people to work longer than it is for others. Some may find it difficult and this is why I make the qualification. As part of our ordinary constituency work we all know of people who might be the same age, some of whom may be perfectly capable of continuing to work but others who may not because of their physical or medical condition, and this should be borne in mind. The pensions of the future must cater for people in this category such as, for example, those who must take early retirement due to ill health. It will not necessarily mean that the obligations of the State or public or private pension funds will be able to opt out. They may have ongoing responsibilities with regard to payment in future.
There is considerable concern among the public, public servants and the private sector because thousands of people have lost their pension entitlements since their pension funds went down the drain. Such people have no pensions but will depend on the State pension at some stage in future. This is the case in the private sector. This is widespread and many such people were encouraged to take out private pensions or life assurance in conjunction with an endowment payment. They were encouraged to do so in business to qualify for various loan entitlements or whatever. That has all gone down the drain and such people have nothing, a situation of some concern. This affects many people in the private sector who we may not necessarily recognise as being vulnerable in this area. Some ten years ago, such people had reasonable prospects and a reasonable pension fund lined up, but now they may have nothing because the pension fund may be broke, like many other things. As a result, such people may be vulnerable and this is a concern from their point of view. We should be conscious of this group which has been affected negatively by the downturn in the economy and the financial collapse. The State must pick up the responsibility for them at some stage in future.
Let us consider those in the public sector. As previous speakers have stated, they are now the whipping boys for those who believe that they are the cause of all our ills and ailments. This is simply not true. A weakness in a society can be determined by the degree to which society as a whole is prepared to share the burden of responsibility and everything that goes with it for any catastrophe that comes down the track. In other words, the last thing a society should do is to attempt to throw the blame onto someone else on the basis that one may feel better about it and one believes one has no responsibility and need not account for anything. That is a dangerous route to traverse. It has been tried by several people, for what purpose I am unsure, or rather I know why, as does everyone else. It is something about which we must be careful.
In the past there was a reasonable degree of certainty to which we could plan for the future and engage in forward planning. At the end of the working life of the average person, there would have been something upon which they could rely in more vulnerable years. It is important to reiterate this now because some people are scared at the moment. They may have had their private pension funds eroded dramatically or, in many cases, it may be gone altogether. Such people are looking at the prospect of depending on a State pension.
They may not qualify for a State pension and are worried by difficulties with qualifying for a medical card, the provision of services, local charges and so forth. Opposition Deputies will say this is appalling and awful without having due regard to the fact that certain things have been thrust upon us over which we do not have any control. We cannot simply opt out by arguing that these burdens have been imposed on us by the European institutions and International Monetary Fund. If this was a game of strip poker, some of those who are making suggestions which appear easy and attractive would have been down to their socks long ago. We know what problems lie ahead. We did not want to be in this place but we are in it and must plan our way out of it.
The age profile of the population is not as bad as is often argued and compares reasonably, and in some cases exceptionally, well with other European countries. We will have a substantial working population for some time. I hope our economic circumstances will change to the extent that we will be able to make adequate provision for the population on retirement.
Approximately 15 years ago, when I had responsibility of sorts, for pensions I proposed that a body similar to the National Treasury Management Agency should assume responsibility for managing pension funds on behalf of the State. Many people objected to my proposal at the time. If it had been adopted, we would have had a fall-back position in terms of resources when some of the recent events occurred.
As has been noted, we are reaching a point at which a universal charge for pension contributions will have to be applied as otherwise people will have to go through the process of means testing, which is not a cost-effective option. People would be horrified to learn of the overall cost of the various means tests. The simple approach is to require everyone to make a contribution and pay a pension which does not require a means test. I note some commentators have recently called for benefits to be means tested. We are in difficult times but if one introduces means tests for benefits, one creates a further cost to the State which would be outrageous. Every time an administrative intervention is made in the processing of claims, the process becomes less efficient and more costly and burdensome.
I indicated that people can and should work until a later age. This scenario is anticipated in legislation. Some people will find the option of working long after the normal retirement age beneficial, therapeutic and important. This option should be encouraged and people should not be penalised for availing of it. I am concerned, however, by some of the comments made from time to time on the benefits accruing to pensioners, notwithstanding that pensioners have paid contributions into the system, sometimes over a very long period. A previous speaker indicated that some people work for longer than others. It should be acknowledged that those who have made contributions over a long period did so on the understanding that they would receive a specific payment, commensurate with or related to the cost of living. Those of pension age and the generation that succeeds them require assurance in this regard. The current generation may not even consider the fact that they will rely on a pension in later years and it behoves it to concentrate on what lies ahead. The State must incorporate this aspect in its forward planning because the options available to us are not easy.
For the past three years, the House has regularly debated emerging financial issues which have had a critical impact on the well-being and quality of life of the population. Most of these developments have been negative and were brought about by various circumstances which I do not propose to discuss in detail. It is pointless proclaiming opposition to the steps that must be taken given that none of us likes doing what has to be done. No one welcomes a reduction in income but unfortunately we must all face that prospect. Deputies, Senators and all those we represent outside the House have been affected negatively by factors and circumstances which have not been always within their control. We must make clear to everyone that what we are doing is not by choice and it is being done on the basis of arrangements which have been entered into already. Anyone who suggests there is an easier or softer means of achieving the required outcome is deluding himself or herself as well as people outside the House.
Concerns about the future and present are linked because the decisions we make now, taken against the background of the developments that have taken place in recent years, are crucial. They must be well founded, costed and soundly based if we are to prevail. It is possible that other options are better but many are much worse and we must contend with the circumstances that present.
Since I entered the Dáil, which was not today or yesterday, we have, on more occasions than I care to remember, discussed State and private pensions, pensions funds and their management, use, viability and solvency. Sometimes I worry that we seem to prepare only for the immediate period ahead and are not aware of the various unforeseen scenarios that present from time to time.
One thing I cannot understand is that nobody was able to foresee the kind of collapse of confidence in the financial system and the rapidity with which this happened in the past four or five years, or as it is now possible to see, over the past 15 years.
I make this point in particular because the last comparable recession, or depression, depending on one's state of mind, was in the 1920s and 1930s. There were those who said these things could never happen again, that we were now much cleverer and smarter and would never make mistakes like those made then. What was forgotten, of course, was that modern technology made it much easier for people to make massive profits and, equally, massive losses in a shorter space of time than the blink of an eye. That is what happened in the meantime. There are advantages to modern technology which have benefited our society but there are serious issues in its regard too, which we must keep in mind for the future. The situation we now face, while bad, can become even worse. We must carefully consider and monitor issues as we proceed, especially in regard to investments and how they might affect our pension schemes, public or private, in the future, and we must make decisions that are in the interest of our economy and our people, with due regard for both.
I call Deputy Seamus Healy who is sharing time with Deputy John Halligan.
I support the contribution of Deputy Finian McGrath on this issue. He made a very strong case in regard to this Bill, which is about grand theft. It is a discriminatory taxation scheme rather than a pension scheme. It is one of many attacks on public servants who, as we all know, have been demonised in the media in recent years, and this continues almost daily. These public servants are the local county council road worker, the fireman, the ambulance driver, the hospital porter, the cleaner, the clerical officer, the nurse, the teacher or the garda. This Bill is part of the campaign against the public service. The previous Government initiated the Bill. Its Deputies were very glad to admit earlier today that it was drawn up initially by the Fianna Fáil-Green Party Government. It has now been adopted by the Fine Gael-Labour Party coalition.
The public service has been assessed by an OECD report. It is clear that the Irish public service is smaller, less costly and more effective than most public services and servants throughout the OECD countries. Very many public servants earn less than the average industrial wage and many apply for and are currently in receipt of the family income supplement, FIS. The public service has already had a number of wage cuts, in addition to the pension levy. Standards of living and income of public servants have been reduced considerably, in particular during the past two years. The House heard today of the very considerable and outrageous pensions and lump sums of very senior civil servants. Those situations are being used to attack normal public servants, very many of whom are earning less than the average industrial wage and may be in receipt of FIS.
I reiterate, these proposals are grand theft. This is the case because the scheme is compulsory and because very many, if not all, new entrants will get less from the scheme than they pay in. Actuaries have looked at the scheme and are satisfied that more will be paid in on a compulsory basis by public servants than they will get out of the scheme. That situation leaves this scheme and this Bill open to legal challenge.
That is not true.
The Minister had his opportunity. I am entitled to my say.
Keep to the facts.
It is a shame the Labour Party is involved in these attacks on public servants.
The fact remains that this scheme will be open to legal challenge——
——on the basis that it is a rip-off. People will pay more into this scheme than they will get out of it and this is to be done on a compulsory basis. The next situation we will face will be claims that the existing scheme for existing public servants is too generous and should be reduced. In fact, this has already happened. I heard a Government party Member say as much.
The Government and employers, IBEC and Government party Members will say this, and further down the road, existing public servants and the existing scheme of which they are members will be attacked. I reiterate I heard this stated today by Government party Members.
There is no effective employer contribution in this scheme.
That is rubbish.
This would be illegal in the private sector.
As soon as this scheme is introduced, there will be further attacks on public servants.
The scheme proposes a move to a career average assessment, later retirement and consumer price index linkage, which makes for a drastic disimprovement in retirement benefits for public servants. I reiterate this is an attack on public servants. The new scheme will be less generous than all private sector schemes.
That is absolutely untrue.
These are figures produced by the Trident report and by actuaries.
Have you read it?
The Minister is hiding behind his own figures and figures from——
The Deputy is talking rubbish.
This scheme is quite clear. An independent report by actuaries has proved that this scheme is not a pension scheme at all but a rip off.
It is a pity the Deputy did not read it.
The people in the scheme will pay more into the scheme——
Did the Deputy read the Trident report?
The Deputy has only two minutes.
——than they will get out of it.
The Deputy is talking through his hat, as usual.
It is despicable that a person who claims to derive his politics and policies from James Connolly would involve himself in this kind of carry on and this kind of attack on public servants.
You are talking through your hat.
The scheme is part and parcel of a campaign which has demonised and continues to demonise public servants.
I refer to the increase in age proposed under this scheme. The scheme is part of various proposals and implementations to increase retirement age from 60 to 65 and thence to 66, 67 and 68, on a compulsory basis. I have no difficulty with public servants who want to work until they are 65, 66, 67 or 68, provided they can do so on an optional basis. They must be allowed to continue to work on an optional basis and should not, as is the case with the Bill, be forced to do so on a compulsory basis. Allowing people in the public service to remain in work into their mid-60s will have a knock-on effect in respect of employment. Fewer employment opportunities will arise if more people remain in the service.
Yesterday, in reply to a point made by the leader of Fianna Fáil, the Taoiseach stated that excessive "administration charges imposed by pension funds can absorb the vast majority of the temporary pension levy". The levy to which the Taoiseach referred amounts to 0.6% and he stated yesterday that the administration charges imposed by pension funds could cover the costs relating to it. I tabled amendments to the relevant legislation which dealt precisely with this matter. Those amendments were designed to ensure that neither contributors to pension schemes nor those who are already on pensions would be affected by the levy. One of the amendments to which I refer proposed that the administration charges relating to the schemes should be used to absorb the levy. Unfortunately, that proposal was voted down by the Government. I am asking that an amendment of that nature be tabled by the Government in respect of the Bill before the House to ensure the pension levy will not be used — as is the case at present — to increase contributions from members or to reduce the pension payments of those who have already retired. The Taoiseach has accepted the point I made in respect of the levy and I ask that he take action to ensure a suitable amendment be introduced.
I welcome particular aspects of the Bill. I accept that certain reforms to public service pensions are crucial if those pensions are to be made sustainable and affordable in the long term and if there is to be fairness for public servants and taxpayers. Such reforms must be framed in light of the fiscal challenges ahead. It must be acknowledged that public servants have already made a substantial contribution to the necessary reduction in public expenditure at a time when their numbers have been reduced as a result of the moratorium on recruitment, an incentivised early retirement scheme and career breaks.
That is true.
From my reading of it, the Bill does not make provision in respect of high earners such as politicians, the President, members of the Judiciary or the Attorney General.
They are all included.
Those to whom I refer enjoy an accelerated accrual of pension rights and if they are contemplated within the provisions of the Bill, I would be delighted.
I am disappointed the Government opted not to meet representatives from the teachers' unions in order to hear their legitimate concerns.
I met representatives from all three unions.
The Minister did not meet them before he attempted to legitimise this Bill——
Of course I did.
——or prior to the completion of the report.
I went through the report with them.
Were they all happy with it?
I did not say they were happy with it.
Exactly. Despite a pre-election promise, I am aware that Fine Gael Members — of whom there are none present in the Chamber — did not meet representatives of the teachers' unions. Perhaps the Minister, Deputy Howlin, did meet them.
I did meet them.
If he did, I apologise for doubting him. I met some of the union representatives and I am aware that their concerns relate to the measures which could give rise to teachers contributing more to their pension schemes than they will obtain in return.
I explained the position in this regard earlier.
The concerns of the teachers' unions are genuine and they should be examined.
Another concern of the teachers' unions relates to young teachers who, on entering the profession, spend several years engaging in part-time and substitute work. When they finally obtain a permanent post, they are obliged to enter onto a long, incremental pay scale. This is despite the fact that they must pay the massive costs relating to the existing pension scheme. In reality, these teachers will only reap the benefits of the new scheme. I am of the view that this is extremely unfair, particularly as these individuals either have been or are on the incremental pay scale to which I refer.
Why is it the case that, under the legislation, new recruits will not be allowed to opt out of the new scheme and make provision for their own pensions on the same basis as private sector workers?
One would not be able to buy a scheme as good as that on offer.
Consideration should be given to putting in place an opt-out clause because it is not as hare-brained a proposal as some might think. Some economists have stated that the possibility of introducing such a clause should be examined.
The unions are standing over the findings of the independent Trident report, which states that a teacher entering the new scheme at the beginning of his or her career would pay more into the pension than he or she would ever receive in return. Many teachers will end up not only fully funding their pensions but there is also the possibility that they could over-subscribe to them. That would be nonsensical. Surely the Government can, even at this late stage, see the merit in consulting the unions in respect of this issue.
I wish to draw the House's attention to the urgent need to restore the balance between public and private sector pension provision. While pension benefits in the public sector are in need of reform, they are nonetheless protected. The same is not the position with regard to private sector workers who in my view will be obliged to pay even higher taxes after the forthcoming budget while tax relief will be stripped away from their pensions. Between the confiscation of pension savings by the Government and the poor returns from so many badly managed funds, increasing numbers of people in the private sector are asking why they should bother making pension contributions in the first instance. If the Government is committed to encouraging people to plan for retirement in a realistic way, it must reconsider the decision to reduce the pension contribution tax relief without delay.
Deputy Durkan referred to how great it is that people can work until they are 65, 68 or even older. Did he consider the position of farmers, labourers or hotel workers in that regard? If one asks these people whether they want to continue to work until they reach the age of 68 or 70, they will state that they most certainly do not wish to do so. Do we want to work people to death? That is certainly what the Government is proposing to do in the Bill before us. I have not met one person who is involved in shift work or who works hard in his or her job as a hotel employee or a farm labourer who has informed me that he or she would be prepared to work until the age of 68 or 70. What is being proposed is despicable. People should have the choice to work to a later age if they so wish. However, forcing them to work until they reach 68 or 70 years of age is nothing other than promoting a system of slave labour.
I welcome the opportunity to contribute to the debate on the Bill but also to comment on the wider issue of pensions. When the old age pension was first introduced in Germany, the average life expectancy was 65. As a result, the German authorities set 65 as the age at which people could retire. It was not expected that many people would draw down their pensions for very long and it was quite easy to make proper pension provision. In the past 20 years, the average life expectancy has increased by ten years to 75. The difference between 65 and 75 does not appear that great. However, if the retirement age is 65, this represents a doubling of the pensions bill. That is where the pensions time-bomb lies.
We must all learn one of the fundamental lessons of mathematics, namely, that it is not possible, over the long term, to pay out more than is taken in. There are those in the House who continually state that there can be no change in respect of the pay out. However, they also resist any changes in respect of what is paid in. If these people ever got into government, I am sure they would take a more sensible approach. If we follow their line of reasoning, it is obvious that a major gap exists. Who do they suggest should fill that gap in the long term? Therefore, we face challenges. Our own success is a challenge as people are living much longer than they did in the past.
I was very surprised to hear Deputy Halligan talking about adjustments in pension reliefs. The initial proposal for pension relief was to standardise all pension relief at 33%, and that is still where I would like to go. I know there are commitments in the four-year plan but if the fiscal position improves, a 33% rate would be a balanced proposal. I have heard people quite rightly complaining in the past that those on the highest income got the biggest tax relief on pension contributions while those on the 20% tax band got little relief or no relief if they were outside the tax net. The idea behind a rate of 33% across the board was to encourage young people to start paying into pensions when they were on low incomes. As economic conditions improve, we should aspire to that approach.
There are constant warnings on the television about share values, with pensions going up and down depending on the international financial markets. We know many pension funds have lost money and I ask the Minister for Public Expenditure and Reform to examine the sovereign bond issue. There is a potential for a double gain, which I have returned to time and again. There is a gain from the State not having to borrow abroad and instead borrowing from its own people, and on the other hand there is a much better return for the pension funds. The only guarantee to be given is that the country will not renege on sovereign bonds. The idea is well worthy of consideration. For example, €20 billion of Irish pension funds are in French or, in the main, German bonds. If that money was in our Exchequer, it would reduce the requirement to borrow from abroad quite considerably. Furthermore, the German bonds give low returns but if that money was put into Irish bonds, it would bring more money into the coffers.
There seems to be two ways of thinking with regard to the public service pensions bill. I have heard people saying time and again that top people in the public service get lump sums and pensions which are too big. This Bill addresses the issue. A person starting as a clerical officer may move to being an executive officer, higher executive officer, assistant principal and principal officer before eventually working up the greasy pole to become a Secretary General for five years. The person's pension would forever reflect that last few years and not total years in the service. The person who never got beyond becoming a higher executive officer in the public service would have the pension reflect that level, leaving a major difference between the two pensions.
It has been clearly proven that in the new system the biggest saving will be made from the person at the top, with the next biggest saving from the person one step from the top and so on. The savings made from the people on the bottom would be relatively modest as the figure comes from career average. There are many people who started in the public service recently who have fantastic qualifications such as masters degrees. They may start as clerical officers and move to being executive officers. They may spend five years as a clerical officer, ten years as an executive officer, as well as some time as a higher executive officer. Those people would have a pension based on the average of the number of years at each level, and if a person got stuck on a level, the pension would reflect the number of years spent there. In the current system, if a person manages to get to the top, the pension will be much higher. As we are living longer, it is more difficult to fund this, so a career average approach is a good reform.
There is also an issue of private sector versus public sector. In recent years I have never seen so many people, with a significant number quite comfortably off, looking at a neighbour's field and thinking the grass is greener. Everybody in this society, whether public or private, always seems to think the other guy has a handy number. The Minister is correct in that it would be difficult to buy the type of public service pension that is currently guaranteed. In the public service pensions system, there cannot be a big loss that occurs owing to the vagaries of stock markets. That is the big attraction of a public service pension: a person is guaranteed a sum at the end which is known the day the person starts paying into it. One of the objections to making radical changes to public service pension levels is that this principle should not be radically changed and there should be a fixed rate of return for what comes from the pension at the end. That is important.
It is also important to point out that comparing private and public pensions is like comparing apples with oranges. I am sure the Minister will correct me if I am wrong but my understanding is that public service pensions have always been funded in this State with a pay as you go system. The taxpayer in general is not paying the public service pension. In 2011, the contributions of civil and public servants for that year are paying for the pensions. Am I correct in that assumption?
I will get the exact figures for the Deputy.
On a pay as you go basis, the Minister will be able to tell me that the money paying for pensions is not coming from general taxation but rather from payments on a current year basis, as is the case for PRSI.
The Department would not like the Deputy to put it like that. It regards all contributions to the Central Fund as being under the ambit of the Department.
The public does not think so.
The public might not believe that but it could be wrong. The basic system was working but the problem was a projection into the future. With a rate of 6% contributions and with the pension scheme we had, over time there would be a bigger slice taken from tax funding to make up for the fact that the amount of money being paid in would not cover all the pensioners because their numbers would increase and they would live much longer. Something had to give, with the choice being to take more from general taxation or look to curtail the bill by making the current reforms.
I do not agree with opt-out systems because if they were in place, we would all have opted out when we were young. Those of pension age would all want to opt in again. I do not know if the Minister, Deputy Howlin, hopes to still be the Minister in 35 or 40 years.
It is unlikely.
The Minister of the day——
The Minister is there a while already.
The Deputy could be the Minister.
One never knows with the new technology available. The Minister would find many people knocking on the door, with Johnny or Mary having opted out when they were 25, 26 or 27, leaving them with an underfunded pension and entitlements coming up short. They would be looking to pay in a lump sum or something else. The idea of an opt-out would be very wrong and I am sure the Minister would not put such temptation in the way of younger people who may come into the public service. It is important they provide for themselves in old age.
I acknowledge the fine work done by the former Deputy, the late Brian Lenihan, who created the Public Service Pensions (Single Scheme) and Remuneration Bill. Not only is this Bill in accordance with the EU-IMF programme of financial support for Ireland, it also has accounted for a sustainable plan that will be able to carry on into the future. When this Bill was previously discussed, many members of the current Government argued that it failed to address the issue of retrospectively affecting those in office. I am glad to see that as the Bill is before us, they acknowledge that this action is neither legally possible or plausible.
That said, it is important to note that the Bill aims to bring public service pension terms more into line with those which apply in the private sector, to link pension benefits more closely to average career earnings, to improve the efficiency of pension administration within the public service and to manage the growth of public expenditure on public service pensions over the longer term. Terms included in the Bill are a new minimum public service pension age of 66 years which will be linked henceforth to increases in the State pension age, a maximum retirement age of 70, and pension benefits to be based on career average earnings rather than on final salary. There will be a change in the overall rate of pension contributions from staff. The contributions will remain broadly as apply at present but will be higher for certain fast accrual occupations, modifying the earnings linking of pensions and the reduction but not the elimination of fast accrual terms. The new scheme acknowledges the special circumstances for the President, Oireachtas Members, the Judiciary, the Attorney General and others who earn accelerated pension benefits at present by providing for a doubled rate of accrual together with a doubled rate of contribution for all new entrants to the offices.
Apart from the special cases mentioned above, the terms of the new single scheme apply equally to all public servants. There are no special terms of any kind for new entrants appointed to senior positions in the Civil Service or public service. The career average system applies in the same way no matter what the grade. New entrants under the scheme will be subject to the pension levy.
As the Minister, Deputy Howlin, lauded the Bill as placing this country at the forefront of public service pension reform in Europe, his Government simultaneously began raiding pension funds in Ireland against the advice of officials. The pension levy is discriminatory, inequitable and socially divisive. Older people are hit hardest. The IMF has expressed reservations about the behavioural impact of the levy. There are fears it will not be temporary. The levy bears no relation to ability to pay. Some pension schemes may opt to locate offshore, leading to a flight of assets. The Government has not properly engaged with the pensions industry, nor has it published its impact assessment. The Minister for Finance had no communication whatsoever with the Pensions Board before making the decision.
A question was put to the Taoiseach some weeks ago by Deputy McDonald of Sinn Féin. She commented on the fact that the Taoiseach had signed off on substantial severance pay and conditions for a retiring senior civil servant. The Taoiseach reminded the House that the same conditions of severance pay applied during the previous Administration. However, when he was asked later in the day about the appointment of a replacement, he did not give the same answer. The same pay and conditions and severance agreement applied to the new appointee as to the one who had just left. He said he was hamstrung by the fact that an agreement was in place since 1987 over which he had no jurisdiction and there was nothing he could do about it. It was strange that he could not give that answer earlier in the day. I wonder why that was the case. Was it because the Press Gallery was full at that time and it was not later in the day? It is only right and proper that I ask the Minister, Deputy Howlin, representing the Government, that the inaccuracy be corrected either by him on behalf of the Government or by the Taoiseach. It is only right, proper and fair that the distinction is made and the fallacy is put to rest. It may have been the populist thing to say at the time but to think that the Taoiseach came back to the House a few hours later and had something completely different to say to the same question beggars belief.
I will be brief. The pension debate is exercising the minds of many at present. Despite what Deputy Ó Cuív said, the ordinary Joe and Mary Public are very annoyed at the Judiciary, Secretaries General, county managers and retiring Ministers all retiring on huge pensions and also with a large golden handshake. As the Minister, Deputy Howlin, is aware, most people outside of the public sector will retire with probably only the State pension and they are expected to survive on that. From talking to older people, they are concerned that because of the state of the country's finances, the State pension may be reduced in this year's budget or in the years to come. I hope that will not happen. I expect the Minister, Deputy Howlin, as a member of the Labour Party and with his hands on the wheel will ensure that will not happen.
The Bill was first introduced by the late Mr. Brian Lenihan. It is an essential part of the strategy to put the public finances on a sound and sustainable footing and to tackle the burden of pensions in the future. The Minister, Deputy Howlin, and others saw fit to introduce the levy on private pension funds, about which many are concerned. At the time the Taoiseach pointed out that its main purpose was for investment in jobs, which is important considering that we have such a huge number on the unemployment register. When replying, the Minister might explain the amount of money taken in to date through the levy, the amount that has been invested in job creation and the number of jobs created in recent months.
It has been said continually that there would be no change to the Croke Park agreement for pre-existing pension schemes, but there is still a concern among certain sections of the public service. Like the Minister, Deputy Howlin, I visit the County Hall in Wexford and other parts of the public sector where I hear expressions of concern from time to time to the effect that the Croke Park agreement is not as sacrosanct as it could or should be. In his reply I invite the Minister to outline the situation.
The Public Service Pensions (Single Scheme) and Remuneration Bill was first introduced by the late Mr. Brian Lenihan. At the time the Opposition was somewhat critical of some sections of the Bill but the parties now seem to have embraced it. That is a good thing in itself. It will close the gap between public sector and private sector pensions. The levy is an area of concern. The Bill amends existing legislation to provide for a single pension scheme and pension age for all new entrants to the public service. The new scheme is a commitment under the EU-IMF programme of financial support for this country. The troika has been present in recent days. Has the Minister and his colleagues continued discussions on pensions or is this the final version of the Bill? Will there be changes to it on Committee Stage or is the troika happy with the Bill before us? Perhaps the Minister will provide an overview in that regard.
The scheme will apply to new entrants from the operation date. It will link pension benefits more closely to average career earnings. As Deputy Ó Cuív pointed out, the link with average career earnings is a good way to proceed in future but the pensions of Deputies such as the Minister, Deputy Howlin, and I who have been Members for a long time will be affected by the career averaging system when our pension is due in a number of years. I hope we will be present for some time to come. I do not complain. I understand that retiring Ministers and Deputies were not affected but I believe we will be. I have no problem with that. We all have to share the pain.
I welcome the Bill. I ask the Minister, Deputy Howlin, to explain how much has been collected to date by the pension levy and whether the Croke Park agreement will be affected in the future.
I thank all Deputies who have contributed to the debate, which has been useful. For the periods of time when I was not present in the House a careful note was made of all the comments, suggestions and observations. I look forward to a more detailed engagement on the issues during the remaining Stages, in particular Committee Stage, when we will be able to deal with the Bill line by line, and also when it goes to the other House.
The Bill is important, reforming legislation. Deputy Browne is correct that its gestation was in the previous Administration, although it was crafted by us and was not approved by the Government until last month. It has also been approved by the troika. The new pension scheme for the public service will cover approximately 300,000 people. The Houses must have the opportunity to consider, debate and make an input into framing this complex legislation and, in that spirit, I invite Deputies to bring forward amendments for me to consider fully on Committee Stage. As it is essential that the Bill clearly implements this important policy change, the Government has decided that we will be open on Committee Stage to the views of all Members of this House. Once the result of the referendum on the remuneration of judges is known, consideration will have to be given to the implications, if any, of this Bill. It will not be possible to bring forward the necessary amendments until the will of the people has been discerned.
I welcome this debate as an opportunity to begin the process of clarifying the issues arising. Deputies raised issues which will be considered in detail and I also want to address a number of principles which underlie the new scheme.
Deputy Fleming asked for clarification about what might happen to new scheme pensioners over the longer term if pay increases are greater than the CPI. He pointed out that inflation has risen in recent years, while salaries in the public service have decreased, and indicated that he may table amendments on Committee Stage to provide for a hybrid scheme that would offer a middle ground between these positions. The linking of pensions to average career earnings rather than final salary is at the heart of these new arrangements and is fundamentally fair. Under the new scheme, the pension received on retirement will be a fixed percentage of pensionable remuneration and is accrued each year. If pay increases are agreed for serving staff, they will be reflected in the pension benefits they accrue. Following retirement, the legislation makes clear that pension increases will be linked to changes in the consumer price index rather than the pay of the relevant serving officer. This measure will ensure the value of the pension in real terms, adjusted annually under the CPI, will be maintained. I do not see anything wrong with that approach. A pension should offer retirees a decent and inflation proof income. It should not necessarily be forever linked to the position a person once occupied.
In discussing the schedule of bodies excluded under the legislation, Deputy Fleming asked if nationalised banks or financial institutions will be included, presumably on the grounds that the staff of such organisations might be regarded as public servants. The Schedule to the Bill lists Anglo Irish Bank as an excluded body. This is being done because it is a nationalised financial institution.
Deputy McDonald raised the possibility that the new scheme might apply to serving staff and asked me to outline any legal or practical reason this should not be done. The Deputy is correct in saying that the introduction of the new scheme will mean that staff working in the same jobs at the same rates of pay will be members of different pension schemes. That is an unavoidable consequence of the introduction of a new scheme. I am advised that, in and of itself, having staff in two separate schemes will not create particular difficulties. In fact, this practice is becoming increasingly common in the private sector, where some companies have introduced significant changes to their pension terms for new staff. There should be no reason for confusion on anyone's part once this new scheme is introduced. The terms of the new pension scheme will be made clear to all new staff on recruitment and they will apply for their jobs in full awareness of the pension arrangements that will be available to them on retirement.
In regard to the legal and practical position on changing the pension terms of serving staff, the legal advice available to my Department makes it clear that changes to the accrued pension rights of serving staff would be very problematic. I do not intend to take that route because people have property rights over their existing pensions and in many cases they opted to stay in the public service rather than seek more lucrative alternatives in the private sector for the sake of their pension entitlements. It is important that the bargain is maintained.
Given the major changes that have been made in the Bill to the pay and pensions of serving staff, enough has been done. Deputies will recall that existing pensioners have experienced reductions in their pensions and from the end of February 2012 the grace period will end and pension benefits of retiring staff will be calculated on the basis of reduced pay rates. That will also apply to the Members of this House. Deputy Browne spoke about being part of the new pension scheme but all existing staff of the public service will be part of the existing scheme.
Deputy McDonald raised the issue of the top level appointments committee, TLAC, terms and the future pension arrangements applying to senior staff. Members on all sides of the House have serious difficulties with senior civil servants walking away with enormous pay packages at the end of their employment. The Bill does not offer any special arrangement for senior staff and all staff will be dealt with alike under the new scheme. It will apply to all new entrants at whatever level they join the public service. This was a deliberate decision on the part of the Government to give us the opportunity to consider properly the arrangements which should apply to staff at these grades within a legislative framework that applies equally to all new public servants.
I am reviewing the current TLAC arrangements. I confess that I did not know about them even though I have been a Member of this House for a very long time. I believed these particularly generous arrangements were only available to Secretaries General on retirement. The review of the arrangements is coming to a conclusion and I hope to bring the results to the Government next week, but until the Government has discussed and decided the issue, I cannot provide details on it to the House. I assure Deputies that the new arrangements will take full account of Ireland's changed economic circumstances, will be introduced immediately and will apply to all new senior level appointments. As regards the concerns expressed by several Deputies that new Secretaries General would get the TLAC terms, the Government will address this issue at an early date and all new appointments will be subject to the new arrangements.
Looking beyond these immediate issues, the terms of the new scheme will apply equally to those on the lowest pay rates and those at the top of the scale. The pension benefits available to new entrants at senior levels will be those accrued under the scheme. There are no special benefits, added years or special severance packages. Prior to the commencement of the new public service single pension scheme, I intend to bring further proposals to the Government on the terms applying to senior level appointments in light of the changes the new scheme makes to pension and retirement ages for new entrants, as well as the decisions the Government will take on the existing TLAC terms.
Deputy Fleming asked about the estimates produced by the Oireachtas Library and Research Service in regard to the likely effect on various pensions. As the document was only published yesterday, my Department has not yet had an opportunity to examine the figures in detail. I can, however, confirm that the estimates of the likely effect of the new scheme on the pensions of lower paid staff are broadly in line with those prepared independently by my Department. Staff who are not promoted during their careers will receive approximately the same pensions under the new scheme as they do at present, ranging from 95% to 100% of the current pension. However, the estimates suggest that in respect of senior staff, such as Secretaries General, the new scheme will offer a pension of approximately 90% of the present remuneration. I am not sure how that figure was arrived at because my Department's estimate indicates that the pension available for senior grades under the new scheme will be approximately 50% of the pension typically available under the current arrangements. That is our calculation. We will clarify the position with the Library.
We will admit that we would say the Minister was right.
All long-term estimates depend on the presumptions made about pay and pay increases. They should be regarded as typical rather than as definitive.
Deputy Seán Fleming asked how many in the public service were on salary rates of over €50,000. He raised that issue in the context of the effect of the new pension arrangements on pensions below that rate. Obviously, any figure I give is a snapshot of the current position which may be very different by the time people retire under the scheme. To answer the Deputy's question directly, my Department estimates that approximately 60% of public servants are on rates of pay of less than €50,000 and that over 75% of public servants are on rates of pay of less than €60,000. Less than 3% of public servants are on salaries of over €100,000.
The Deputy also asked for details of my general estimate that the new scheme will produce a saving of €1.8 billion, or approximately 35% of annual payments on public service pensions. We estimate that by the middle of this century the total cost will be approximately €5 billion. Not all of these savings arise from the introduction of the new career average system. In other words, pensions are not expected to be reduced by 35%. We estimate that the increase in the pension age will introduce a saving of approximately €300 million. The linking of pension payments with the consumer price index, rather than pay, will save a further €500 million of that total. It is not the case, therefore, that pensions are being reduced by 35%. The overall savings will be approximately 35%.
Deputies have also raised the question of the administrative arrangements which might begin to apply when the new scheme is introduced. I entirely agree that the new scheme gives us a major opportunity to improve pensions administration, reduce costs and improve efficiency. There is already a considerable degree of centralisation in the service. The education offices are in Athlone and the defence offices are in Galway. The Department of Public Expenditure and Reform provides pensions administration services for approximately 50% of retirements from the Civil Service. Deputy Seán Fleming made the point that the case for further centralisation, aimed at improving efficiency, was even stronger as a result of the introduction of a single pension scheme. We now have a chance to improve things significantly. I want to improve pensions administration as part of the general public service reform programme in my Department. It will be a question of building on these developments as more and more entrants are recruited into the public service and become members of the new scheme.
I pay tribute to the other Departments and offices which have helped to produce this legislation. Officials in the Office of the Attorney General and the Departments of Education and Skills; Social Protection; the Environment, Community and Local Government; Health; Justice and Equality; and Defence assisted the staff of the Department of Public Expenditure and Reform in developing the policy that underpins this important legislation. Staff in every public service body will have to work on the practical arrangements which will arise after this legislation has been enacted.
I thank Deputies for their contributions. The debate has brought to light the key issues relating to these far-reaching measures. We will have to consider a number of the more detailed technical points raised. I will reflect carefully on all the points made and look forward to detailed engagement with Deputies on Committee Stage.